Financial Freedom

Published May 22, 2017

Most people dream of achieving wealth. Do you dream of traveling the world, quitting your demanding job, or simply desiring to sleep in a little more?
These ideas all center around forms of freedom. Specifically, it’s personal financial freedom (PFF).
What does it mean to have PFF? Having enough money that you don’t need to work to cover your basic necessities. In other words, PFF means living below your means for the rest of your life, saving at least half of every paycheck until you have enough to retire on the interest.
Realistically, how much money would it take for you to be that free? It might seem incredible, but it’s possible.
If it’s a goal, or if you’re just curious, consider the following.
1.) What’s your number?
Traditional retirement planning expects you to spend a certain amount of money on living expenses each year. Multiply that number by the number of years you expect to live after retirement, factor in inflation and a modest rate of return, and that’s it.
Living                  X          # of years              +          buffer for inflation          =         Number for
Expenses                     past retirement                                                                      Financial Freedom
Financial freedom before retirement (FFBR), or interest-only retirement, means your capital is generating a stable rate of return. This rate of return is your only source of income for FFBR. The math is simple. Multiply your desired yearly income by 66.6 (a 4% annual rate of return, less a 3% rate of interest), and that’s what you’d need. For example, a $50,000 yearly income would require about $3.3 million. That’s a lot, but it’s attainable.
Desired Yearly Income X 66.6 = Number for Financial Freedom
2.) How can you get there?
Two habits kill the move toward financial freedom: consumer debt and lifestyle inflation.
Consumer debt includes credit cards, auto loans and other big-ticket purchases. Anything that you DON’T pay cash for that won’t increase in value falls into this category.
Lifestyle inflation is purchasing goods based on the mistaken belief that you need them. Lowering your lifestyle expenses helps you reach financial freedom.
3.) Take a shortcut
Financial freedom doesn’t have to be complete, or forever. Having enough money to last a year of unemployment, or to quit your day job and live off your investments and complete your passion projects for a year can also be a freeing feeling.
What would you do if you didn’t have to work? Write a book? Spend time with family? Sleep till noon?